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MG8-Business Policy and Strategy

CHAPTER 3 – STRATEGY FORMULATION

VISION/MISSION STATEMENTS

 Mission tells the reason for the company’s existence

o It tells what the company is now and what it is doing at the present

o It tells what type of customers are being served, how the company
does its products or services and its desired level of performance

o It defines the products or services offered and the types of consumers


served

Aside from specifying the types of customers and the kind of products or
services offered, a comprehensive mission statement also identifies the market
where the company wants to compete. It also reflects the commitment of the
company to growth and financial soundness.

A comprehensive mission statement explains the company’s philosophy


such as the aspirations, beliefs and principles of the firm. It should also answer the
question of the firm’s competitiveness and its responsibility to the community or
society at large.

 Vision explains what the company wants to become

o It serves as a challenge for the company

o It visualizes the company’s future and takes a glimpse of what the


organization will be like in a certain period

o It becomes the company’s inspiration and establishes the framework of


action plans to realize it

o The vision lays down the foundation for the formulation of the mission
statement

o It answers the question: “Where do we want to go?”

Both the mission and vision statements identify the direction of the company.
The mission and vision statements differentiate the company from its competitors.
They help in defining the parameters by which managers formulate their strategic
plans.

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Strategizing is more than just visioning or planning. To strategize is to be
aware of what the competitors are doing. Therefore, to strategize means being
competitor-oriented.

Formulating competitive strategies means building sustainable competitive


advantage.

Sustainable Competitive Advantage – is the creation of a prolonged, unique


strategy that will be difficult for competitors to be neither duplicated nor surpassed

On the other hand, Jack Welch, the legendary former chief executive officer of
GE discussed Business Strategy Stretching.

Business Strategy Stretching – is doing the best possible strategy and


beyond

THE FIVE POWER Ps

There are five power Ps that spell strategies in the works for a particular
organization.

1. POSITION – is the advantage that an organization gains in the hands of the


consumers

2. POWER – it is a competitive edge, a following of some sort that a company


should not allow competitors to surpass

3. PACE – there is timing and intensity of strategy put on the ground

4. POTENTIAL – it is the probability of the success element of a particular


strategy

5. PERFORMANCE – it is the effective implementation of a particular strategy

PORTER’S GENERIC STRATEGIES

Michael Porter developed three basic competitive approaches in strategic


management.

 Cost Approach

o It concentrates on keeping costs low

o With lower costs, the company can offer the product or service lower
than the competition

o This strategy has been employed by Chinese businessmen, and


coined the Filipino term, tubong lugaw

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 Differentiation Approach

o The company makes its products or services unique and distinct

o In this approach, the customer is willing to buy at a higher price as


long as it can satisfy his/her taste based on its quality, uniqueness and
distinct appeal or feature

 Focus Approach

o It is specializing or concentrating in a particular market segment just


like what Rustan’s Department Store is doing for a high-end market
segment

POWER STRATEGIES

There are two power strategies available for organizations.

1. Horizontal Integration – the strategy of a company to expand its business


into different products that are similar to current lines

2. Vertical Integration has two subtypes:

a. Forward Integration – a form of vertical integration where a company


controls the direct distribution of its products

b. Backward Integration – a form of vertical integration where a


company purchases the suppliers in order to reduce dependency

ADAPTIVE METHODS

Miles and Snow (1978 cited in Encyclopedia of Management, 2005-06)


discusses the need for a company to adapt a constantly changing competitive
environment. With this, they created three approaches of creating a competitive
strategy.

 Prospector Approach – an adaptive method which is based on innovation and


exploration of new market opportunities

 Defender Approach – an adaptive method of making vast improvements in its


present products or services

 Analyzer Approach – an adaptive method of making attempts to copy and


make improvements in the success of products or services provided by
competitors

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ESSENTIALS OF POTENTIAL STRATEGIES

For a company to be competitive in the market, the product or service should


have the potential to succeed. This potential is expressed in the following
characteristics:

 Transferability – indicates that a product or service can be transformed into


something highly valued by customers

 Competitive Dominance – the product or service surpasses its competitors


in terms of sales and brand recall in the industry where it operates

 Uniqueness – the product or service cannot easily be copied by competitors

 Substitutability – indicates that the product or service cannot be replaced


through substitution by competitors

 Durability – indicates that the product or service does not deteriorate or


depreciate quickly

GROWTH STRATEGIES

 Diversification – it is the development of new products for new markets

 Market Development - it is the development of new market for existing


products and services

 Product Development – it is the development of new products to existing


markets

 Market Penetration – it is the desire to achieve greater percentage of the


market share through the company’s existing products in existing markets

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BALANCED SCORECARD

Balanced Scorecard – is a system that measures the organization’s progress


in accomplishing its strategic objectives

In 1992, Robert Kaplan and David Norton developed the Balanced Scorecard
which incorporates financial indicators as well as three other aspects: customers,
internal business, and learning/innovation. The scorecard enables management to link
the perspectives and how they affect each other.
The Balanced Scorecard is a strategic planning system that is now used
extensively by different types of organizations worldwide.
The purpose of the Balanced Scorecard is to align the company’s vision and
strategies to the activities of the Organization.
The Balanced Scorecard included non-financial metrics, which is a far cry
from the traditional performance measurement of an organization. It also helps in
predicting what should be done and measured in the future.
This strategy uses four key processes in order to put short-term activities in
the long-term objectives of the organization. It is used in all levels of the organization.
To work, there are four implementing strategies.
1. Developing a clear-cut strategy
 This is a direct conversion of strategic objectives into measurable
quantifiable terms

 This needs the consensus of the management team

2. Communicating the strategic objectives


 The next step is to communicate the strategy to the entire
organization

3. Planning strategies
 Targets are set and efforts are aligned to reach the planned targets
4. Monitoring strategic implementation
 After the implementation of the strategies, top management
monitor and receive feedback

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In line with these strategies are four basic processes:

1. Financial Perspective

 It includes financial measures such as operating income, return on


investment, and economic value

 It measures the flow of funds in a timely and consistent manner

 Managers analyze the costs and how the funds can realize customer
satisfaction

2. Customer Perspective

 Includes measures on customer satisfaction, customer loyalty, and


market share and it focuses on customer satisfaction

 Metrics are designed to indicate the meeting of customer needs

 Business processes are aligned to achieve customer satisfaction

3. Business Process Perspective

 This includes procurement of materials, production, and order


fulfillment

 Managers see to it that the products and services conform to customer


requirements and standards

4. Learning and Growth Perspective

 Includes measures of employees satisfaction and retention

 This includes employees training and improvement since employees


are considered as the main resource when it comes to knowledge

The Balanced Scorecard also emphasizes learning as an everyday thing. It


also shapes mentoring, communicating, and performing outstanding work.